Decreasing Expense and Delay
The DRAA eliminates many of the strategies parties have used in the past to halt arbitration proceedings or impose unnecessary expense and delay. For example, under the DRAA, the arbitrator has exclusive power to determine the scope of the arbitration, and courts are divested of jurisdiction to enjoin the process or entertain interim challenges. Parties also are relived of the obligation to initiate legal proceedings to confirm their arbitration awards, as they are automatically confirmed within 20 days of the decision.
By default, challenges to an award are limited to direct appeal to the Delaware Supreme Court, constrained to the grounds set forth in the Federal Arbitration Act. The only alternatives available are arbitral appeals or no appeals at all, either of which may be available only if explicitly provided for in the arbitration agreement.
“I applaud these efforts to keep the courts out of the dispute resolution process,” says Bruce Rubin, Portland, OR, cochair of the ABA Section of Litigation’s Alternative Dispute Resolution Committee. Rubin would take it a step further, though, by “building into the statute a penalty for appealing and losing. For example, if a party does not prevail on appeal, award attorney fees to the prevailing party in connection with the appeal.”
Within this tight framework, however, the parties are given great freedom to structure the arbitration as they see fit, with narrow default provisions where their arbitration agreements are silent. Parties, for example, may define the number of arbitrators and their qualifications. They also may designate lay arbitrators—e.g., accountants or engineers—whom the DRAA empowers to retain counsel to make rulings on issues of law.
Rubin urges corporate counsel to use this flexibility to limit motion practice and discovery: “I’d rather see an arbitration clause that expressly prohibits summary judgment motions and curtails, as much as possible, what discovery is available.”
Although the arbitration will be governed by Delaware law, the parties may choose their substantive law, and they can locate the hearing anywhere in the world. They also can use any organization, or no organization, to administer the proceedings.
If provided for in the arbitration agreement, the arbitrator can issue subpoenas and commissions for third-party discovery. Otherwise, the arbitrator will be limited to compelling attendance and document production from the parties. Arbitrators will have unwaivable authority to issue interim relief and, unless constrained by agreement, broad powers to fashion ultimate remedies.
Financial Penalties for Tardy Awards
With very limited exceptions, the entire arbitration process must be completed within 120 days, or the arbitrator’s fees are reduced. This provision may not be waived by the parties. Louis F. Burke, New York, cochair of the Section of Litigation’s Alternative Dispute Resolution Committee, likes many aspects of the act, but worries that the strict time limit “may not be reasonable in some situations where events outside of the parties’ control add inevitable delay.” Burke notes that the act allows an arbitrator to petition the Delaware Court of Chancery for relief from the financial sanction in “exceptional circumstances,” but he questions “whether that provides sufficient and realistic protection for unusual situations.”
Businesses have long complained that the benefits of arbitration are being lost to ever-expanding proceedings that become indistinguishable from full-blown litigation. The DRAA aims to solve many of those problems, restoring speed and efficiency to the private dispute resolution process.
Henry R. Chalmers is an associate editor for Litigation News.